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MedPAC: Value-Based Payment, Post-Acute Care Boost Medicare Savings

MedPAC suggested that the Medicare program could see significant savings with value-based payment reforms and broader use of post-acute care for beneficiaries.

MedPAC advised Congress to leverage value-based payment, post-acute payment reform.

Source: Thinkstock

By Thomas Beaton

- MedPAC has advised Congress that value-based payment reform and encouraging the use of post-acute care can help the Medicare program increase savings and improve beneficiary outcomes, the group said in a new report.

Revisions to payment methodology and incentives have already helped Medicare cut back on spending, MedPAC explained.

For example, from 2010 to 2016, Medicare’s Hospital Readmissions Reduction Program (HRRP) contributed to a 3.6 percent decline in myocardial infarction hospital readmissions, a 3 percent decline in heart failure readmissions, and a 2.3 percent decline in pneumonia-related readmissions. Overall, the reductions in hospital readmissions helped the program save nearly $2 billion each year.

“Beneficiaries endured fewer readmissions to the hospital, without an increase in risk-adjusted mortality, MedPAC said. “While the HRRP may have contributed slightly to the secular trend of increasing observation and ED use, the small increases in costs were far outweighed by reduced readmissions costs.”

Adjusting payment methods for ED utilization in rural areas could also help Medicare provide adequate care and access for beneficiaries, MedPAC suggested.

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Currently, Medicare pays higher rates to urban emergency departments than EDs in rural areas, and only covers emergency services if the provider also offers inpatient services.

Medicare faces challenges when adequately reimbursing ED services to rural communities as inpatient volume in rural areas has dropped significantly over the last few years. Closures among rural hospitals have exacerbated this trend.

MedPAC believes that Medicare can generate savings on ED utilization by covering the costs of 24/7 access to off-campus emergency departments (OCEDs) for rural beneficiaries. The group suggested that by compensating rural, always-open OCEDs 30 percent more than urban OCEDs, Medicare could expand patient access to care.

Creating a unified prospective payment system (PPS) for all post-acute care facilities may also help limit Medicare spending.

The four current PPSs used for skilled nursing facilities (SNFs), home health agencies (HHAs), inpatient rehabilitation facilities (IRFs), and long-term care hospitals (LTCHs) reimburse providers at different rates. MedPAC determined that a new, unified PPS could allow for more accurate payments.

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Congress has already evaluated a prototype PPS model that would unify reimbursement, but MedPAC identified flaws with the prototype model.

MedPAC believes that payments to cover inpatient care need to decrease incrementally. The team found inpatient utilization and costs gradually decrease as the length of a patient’s stay increases. A unified PPS would need to cover a series of smaller payments during an institutional post-acute care stay, which could improve the compensation structure for providers.  

MedPAC also informed Congress that accountable care organizations (ACOs) could also generate greater savings for the Medicare program.  The team said that Medicare ACOs have saved between one and two percent over pre-calculated payment benchmarks, but several ACO payment policies require changes if those savings are to continue or increase.

Hospitals participation in two-sided ACO agreements would likely benefit both the hospitals and Medicare financially, the team found.

“There is a concern, however, that hospitals may be reluctant to reduce service volumes to meet ACO spending targets because they do not want to reduce their own FFS revenue,” the authors said. “However, the data show that ACOs with hospitals can meet spending targets.”

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Asymmetric ACO models, where the share of savings is greater than the share of losses, may also help Medicare cut back spending by millions.

MedPAC analyzed the results of the Track 1+ model, an asymmetric ACO where the shared savings rate is 50 percent and the shared loss rate is 30 percent. MedPAC found that ACOs have tremendous potential for producing Medicare savings. The Commission plans to further track ACOs saving potential.

“A recent analysis by Avalere found that, in aggregate, MSSP ACOs would have fared better in 2016 by $966 million if they had all been in Track 1+ rather than Track 1,” MedPAC said.

ACO financial benchmarks could be improved by using historical and regional cost data to set accurate benchmarks.

Using both types of data would allow ACOs to earn incentives that are representative of a variety of critical factors. Regional cost-based benchmarks have proven successful in the Medicare Advantage program, and MedPAC believes blended benchmarks will help organizations save more money while improving care quality.

The report could help policymakers and federal decision-makers to curb Medicare spending over the long-term. Spending within Medicare has proved problematic for the program in recent years.

Medicare spending in the US reached $710 billion in 2017 and has now eclipsed the program’s income. The Medicare Board of Trustees estimates that the program’s Hospital Insurance Trust (HIT) will be depleted by 2026 if there are no significant reductions in Medicare spending.

Adjusting Medicare value-based care programs such as ACOs, bundled payments, and state-mandated all-payer models could be Medicare’s best chance at limiting program spending.


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